I am not much for shorting stocks. I generally don’t like the risk involved. I prefer to pile on and kick a company when it is down, when it is pretty apparent the company will implode, or when it is outrageously overpriced and there is a technical breakdown.

You can get into a lot of trouble if you aren’t careful and short too early. For example, I think Best Buy (BBY) and Sears Holdings (SHLD) are destined for the scrap bin, but they have enough cash flow to sustain themselves for awhile. Shorting isn’t wise at this time.

I have two new short candidates. I think all of these businesses are going to face very difficult time for different reasons. Regardless of their ultimate fate, one thing is clear: the path of least resistance is down, not up.

Magnum Hunter Resources Corporation (MHR)

Magnum Hunter Resources Corporation (MHR) may be the one selection that goes into bankruptcy at some point. The company has leases on 280,000 acres in the United States’ three shale resources, which it is allowed to develop. The problem is that it doesn’t have much money to develop those fields, and it’s losing money hand-over-fist.

In FY11, FY12, and FY13, respectively, the company had operating cash flow of only $33 million, $58 million, and $112 million, respectively, while negative free cash grew to $258 million, $510 million, and $520 million, respectively. Meanwhile, it also paid out a collective $80 million in dividends, and $104 million in preferred dividends.

The company has had accounting issues, and its CEO has third-party conflicts, as he is also the CEO of a company that handles Magnum’s wastewater. There’s too much smoke here for me to think this is going to work out well. I think you can short this now.

LinkedIn (LNKD)

The business model of LinkedIn (LNKD) has always puzzled me. The site appears to have gained legitimacy as being a centralized bulletin board for people’s resumés. I’m told that, in the PR world, you aren’t taken seriously unless you have a LinkedIn profile. I’m not sure why that would be the case if you also have your own website … but, whatever.

All I see on LinkedIn are discussions in various groups, and my inbox filled with people I don’t know soliciting me for one reason or another. It seems like an expensive spam-filled bulletin board. But that isn’t the real problem.

LinkedIn isn’t making much money. And while it generated $160 million in free cash flow last year, has $2.3 billion in cash and no debt, I just don’t see what the vision is. It trades at 66 times FY15 earnings, which seems outrageously high. Facebook (FB), on the other hand, trades at a forward P/E of 38. That’s not exactly cheap, but it’s nowhere near as crazy as LNKD.

The problem here is that you don’t want to short a momentum stock until the time is right. At the moment, the stock is at $160 — down considerably from its $257 high. I would wait and see if the stock soars back up to that level and then start a short with a limited number of shares. If it starts to fall, add to the short every time it drops 7% or so. And of course, always use a 7% stop.

As a final note: Always be aware of the potential for disaster when shorting a stock. The company may get acquired at some ridiculous valuation, and you won’t want to be short then. But pay attention to the news and fundamentals, and you should be fine.